McCullough Sees Volcker Helping Dollar as Treasury Chief

2010 Investment Guide: Healthcare Boomer Bust

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Manic Depressionistas, Be Careful...

This morning’s weekly jobless claims release was the least-toxic we have seen this year.


At 466,000 claims, this was better on both a sequential (week-over-week) and a 4-week moving average basis. In the chart below you can see these points. Last week’s claims were 505,000 and the 4-week moving average (yellow line) is 496,500.


What does it mean? Well it is probably not enough to make the November monthly jobs report much better, but it definitely isn’t something that’s going to make it worse. Manic Depressionistas, be careful. An 11% unemployment rate is not going to be in the cards – not this or next month, at least.


What’s perverse about this (and not being read through in this way by Mr. Macro Market today) is that anything that remotely resembles a less-than-toxic US Employment picture is bad for the stock market, in the immediate term. Why? Well, that’s easy – that would be US Dollar Bullish.


Which leads me to asking myself another question. Is today’s jobless claims report marking the YTD low for the Bombed Out Buck?


He Who Sees No Bubbles at the Fed once claimed to be “data dependent” – this week’s housing and employment data points, combined with last week’s Consumer Price Inflation report are plenty good enough to NOT be holding interest rates at this ridiculous “emergency” level of ZERO percent.


There is an immediate term bubble in Gold and an intermediate term bubble in short term US Treasuries.


Given the recent data, the Fed’s policy of “exceptional and extended” remains unsustainable and unreasonable.



Keith R. McCullough
Chief Executive Officer


Manic Depressionistas, Be Careful...  - claims


Consumer Confidence Wanes on Both Sides of the Atlantic

As one indicator of sentiment that we track, the GfK released its December German Consumer Confidence report today. In contrast to yesterday’s release of the German Ifo Business Confidence Survey that showed a measurable increase in the business climate (93.9 in November versus 92.0 in October), today’s consumer report falls more in line with our overall intermediate outlook for the Eurozone’s largest economy, and the region itself.


Consumer confidence fell to 3.7 in December from 4.0 in the previous month, while the sub-surveys of economic and income expectations declined significantly and consumers’ propensity to spend was flat. More broadly, the data has been trending downward over the last months (see chart below).


We continue to expect the rate of improvement in broader fundamentals to slow sequentially into year-end and in 1H ’10 for Germany, and many Eurozone countries, with mild growth next year. That said, one bullish indicator for Germany has been its rate of unemployment, which has held steady ~8.1% over the last four months. And today the government announced that its program (subsidy) of shortened work hours or part-time jobs, known as Kurzarbeit in German, which was set to expire at year-end and by all measures was the substantial crutch in maintaining employment, will be extended by another 12 months. The decision by Chancellor Angela Merkel’s government means that the state will pay up to 67% of a worker’s salary for a period of up to two years to keep workers across industry “employed”. Recent data suggests that some 1 million workers were covered under the program.


While prolonging Kurzarbeit should hinder joblessness, on the TAIL we’re left to wonder if striking jobs now would be a better solution, both limiting government expenditure and encouraging companies to right-size their labor force...


Irrespective of the government’s extension of short-time work, we still expect joblessness to be a major concern for the consumer in 2010. Neither Eurozone PMI data out this week (See Topping Off on 11/23) nor German private consumption Q3 figures suggest the consumer is ready to spend, and the stimulus associated with the country’s cash for clunkers is now rear-view. Additionally, today’s news from the Bundesbank that German banks may need to further write-down another 90 Billion Euros of bad loans won’t add confidence in the broader economy.    


While we see bearish fundamental headwinds for Germany ahead, and as an extension for Eurozone countries that rely on the stronger economies of the region like Germany and France for trade, we are on balance bullish on the German economy versus some of its European peers as we believe that global demand should melt up to support Germany’s industrial and manufacturing base.


Matthew Hedrick



Consumer Confidence Wanes on Both Sides of the Atlantic  - GfK



With Thanksgiving upon us and the Holiday season right around the corner, there are many challenges and distractions ahead.  With 2009 looking to be a much better year for most market participants versus 2008, it does not feel like there is going to be a melt-up or down in the market before year-end.  Feelings are not an investment process, but everyone has them.


Confidence is falling…  How many times have you read over the past two months that “job losses threaten to limit spending heading into the holiday shopping season”?  Today it was reported that the University of Michigan “final” index of consumer sentiment decreased to 67.4 in November from 70.6 in October.  The final reading was slightly better than the preliminary reading of 66 reported in early November.


Another smaller but equally important measure of consumer confidence is how people feel about treating their families to a night out to eat.  On this measure, things are not improving either.  Malcolm Knapp reported that October casual dining same-store sales declined 4.9%, with traffic down 4.4%.  Given what we have from a handful of casual dining restaurant operators about trends in October, it’s not surprising that October improved sequentially from September when comparable sales declined 6.4% and guest counts came in -5.3%.  


If you look at 2-year average trends, however, the October numbers do not provide any reason to be optimistic as both same-store sales and traffic trends continued to decelerate from September.  Demand in October was not as bad as last December when trends bottomed, but on a 2-year average basis we are not that far from it with the October comparable sales 2-year trend down 5.5% relative to -6.7% in December 2008. 


The two best performing sectors over the past month have been defensive ones - Health Care and Consumer Staples - rising 7.7% and 4.3% respectively.  This compares to the S&P 500 up 2.4%.  Research Edge’s Healthcare maestro, Tom Tobin wrote today.  “If the outperformance in Healthcare has been due to the fading regulatory threat, the most interesting chart is in the Kaiser Family Foundation Poll on Health Reform.  It appears the public is losing interest, or sees what Wall St. sees.  Maybe it’s like turning off the game when your team is down and the clock is ticking down.  Do the people polled simply have other things to worry about like Thanksgiving dinner and keeping a job?”


Consumers are feeling the pinch in a number of ways and it’s hard to see a light at the end of the tunnel.  While I always look forward to the start of a new year, I’m nervous about what 2010 has in store for us.   


Howard W. Penney

Managing Director




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